The cost of living in California can be astronomical, and the real estate market reflects that. You may think your only option is to rent a home with bad credit because qualifying for a home Installment loan is impossible but think again!
Residents of California may now have access to two new forgivable loan programs! Suppose you are struggling to find or keep affordable housing in The Golden State. In that case, you may be able to qualify for financial assistance.
Buying a first home is an exciting milestone, but saving for a down payment is often the biggest hurdle California’s new Forgivable Equity Builder Loan removes this roadblock with unique down payment assistance. If you stay in the home for 5 years, the loan is entirely forgiven, giving you an instant equity boost
California Housing Finance Agency (CalHFA) created the program to expand fair access to homeownership. The forgivable loan makes buying more realistic for eligible borrowers by providing up to 10% of the purchase price.
What is the Forgivable Equity Builder Loan?
The Forgivable Equity Builder Loan provides a no-interest junior loan of up to 10% of the purchase price or appraised value, whichever is less. The maximum loan amount is determined by the sales price. If you occupy the home as your primary residence for 5 consecutive years, the loan is fully forgiven.
This subordinate financing can be used for your down payment closing costs prepaids or rate buydowns. It allows you to buy sooner without requiring years of saving. The program launched in April 2022 and is offered through CalHFA’s network of approved lenders across California.
Top Benefits of the Forgivable Loan
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Immediate home equity – Gain up to 10% equity when you close and additional equity as you pay down the first mortgage.
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Smaller down payment – Reduce or eliminate the amount needed from your own funds for down payment and closing costs.
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Lower first mortgage amount – Borrow less on the primary loan to improve affordability and loan-to-value.
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More flexible guidelines – Qualify with lower credit scores and higher debt-to-income ratios than conventional loans.
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Lower monthly payment – Forgivable financing reduces the payment on your first mortgage.
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Build wealth – Future appreciation and equity belong to you once the loan is forgiven.
Who Qualifies for the Forgivable Equity Builder Loan?
The program has eligibility requirements for borrowers, properties and income limits. All borrowers must meet the following criteria:
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First-time homebuyer
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Purchase an owner-occupied primary residence in California
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Become the owner of record on title and occupy the home within 60 days of closing
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Have income at or below 80% of the county’s area median income (AMI) based on family size
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Meet credit, income and loan requirements of CalHFA’s first mortgage program
Non-occupant co-borrowers or co-signers are not permitted. Homebuyer education is required. The property must meet guidelines of CalHFA’s first mortgage product.
Fannie Mae’s AMI lookup tool can confirm you are below the income limit. Lenders will verify eligibility during the pre-approval process.
How Does the Forgiveness Timeline Work?
The subordinate loan term matches the term of your CalHFA first mortgage up to 30 years. However, the loan is forgiven much sooner if you continuously occupy the home as your primary residence for 5 years from the date of closing.
After 5 years, CalHFA will fully forgive the remaining subordinate loan balance. Prior to this date, the loan is forgiven on an annual pro-rated basis of 20% per year. Your lender will provide details on the forgiveness timeline and repayment requirements.
Which CalHFA First Mortgages Can Be Paired?
Not all CalHFA first mortgages allow layered financing with a Forgivable Equity Builder Loan. Eligible first lien programs include:
- CalHFA FHA
- CalHFA VA
- CalHFA USDA
- CalHFA Conventional
The loan cannot be used with CalPLUS FHA or CalPLUS Conventional mortgages. Be sure to choose a qualifying CalHFA first loan option when applying.
Next Steps to Apply for the Forgivable Loan
If you want to buy a home with innovative financing, follow these steps:
- Check your eligibility for the program including income limits
- Get connected with a CalHFA Preferred Loan Officer to start the process
- Choose a CalHFA first mortgage to pair with the subordinate loan
- Submit a loan application and all required documentation
- Complete the purchase transaction within program guidelines
Homeownership is more accessible for California’s hardworking families thanks to CalHFA’s Forgivable Equity Builder Loan. Contact a lender to ask about the program or get prequalified today.
What Is a Forgivable Equity Builder Loan?
The California Housing Finance Agency (CalHFA) offers a new forgivable subordinate loan program called the Forgivable Equity Builder Loan. This down payment assistance program was designed to boost home ownership in California by helping first-time homebuyers get immediate equity in their new home. But this program may only be used with a CalHFA first mortgage.
The Forgivable Equity Builder Loan is meant to help qualified, first-time homebuyers cover down payment costs, closing costs, and rate buydowns. California residents can borrow up to 10% of a home’s purchase price through this program and get a zero-percent interest rate. And if the borrower continuously occupies the house as their primary residence for at least five years, the loan can be forgiven! But if the homeowner does not occupy the property for at least five years, there may be tax consequences. In the event a Forgivable Equity Builder Loan is partially forgiven, CalHFA loan servicing will annually issue a 1099 Form to borrowers during tax season.
What To Know About Buying Homes in California
Before you move forward with the home-buying process in California, it is essential to understand the current real estate market.
Owning a California home is a dream for many. Still, the cost can prevent that dream from becoming a reality for many low-income families. In January 2023, the median home price of a home was reported to be $693,800. This is significantly higher than the national average.
According to Redfin, the median sale price of a U.S. home is $400,706, which is $293,094 cheaper than the median cost of buying a home in California.
Many mortgage lenders in California require a 20% down payment, which generally costs $138,760. Many people do not have that much money saved up for their first home. But if you have enough to provide 20%, you may get a low-interest rate and avoid paying for private mortgage insurance (PMI).
If you qualify for a low-down-payment mortgage program, you could pay as little as 0% or 3% for a down payment. Suppose you apply for a conventional mortgage with a 3% minimum down payment. In that case, you only need to provide $20,814 as a down payment.
New FORGIVABLE EQUITY BUILDER LOAN from CalHFA – 10% Down Payment Assistance!!
FAQ
Is the forgivable equity builder loan still available?
Do you have to pay back a forgivable loan?
How do you get a forgivable loan?
What is a forgivable equity Builder loan?
The Forgivable Equity Builder Loan (Forgivable Loan) is a forgivable subordinate loan program that may only be used with a CalHFA first mortgage. Your first-time homebuyer, with income < 80% AMI can use this Forgivable Loan for down payment and closing cost assistance. This program is only available through a CalHFA-approved lender.
Can a first-time homebuyer get a forgivable equity Builder loan in California?
California offers a new home loan program for first-time homebuyers who need to pay a down payment. The California Housing Finance Agency (CalHFA) offers the Forgivable Equity Builder Loan program, where first-time homeowners can obtain forgivable loans for up to 10 percent of the purchase price.
When will the forgivable equity Builder loan Handbook be available?
This program will be available on Monday, April 4, 2022. Cannot be combined with CalPLUS/ZIP or MyHome. The Forgivable Equity Builder Loan handbook will be available on our website on April 4, 2022 with all program details.
What is a forgivable loan?
The term of the Forgivable Loan matches the term of the CalHFA first mortgage not to exceed thirty (30) years. Payments on Forgivable Loan are deferred for the life of the first loan. The Forgivable Loan is due and payable when certain events occur.
When is a forgivable loan due?
The Forgivable Loan is due and payable when certain events occur. The formal filing and recording of a Notice of Default (unless rescinded) This loan is not assumable.